NZ dollar falls over half a US cent as Key talks down currency

Wednesday 8th August 2012

The New Zealand dollar fell over half a US cent after Prime Minister John Key indicated the kiwi has room to fall and its current strength could stifle the local economy.

The New Zealand dollar fell to 81.46 US cents at 8am from 82.02 cents yesterday at 5pm. The trade weighted index decreased to 73.22 from 73.54.

The kiwi has been one of the best-performing Group of 10 currencies this year, pushing toward new highs on all the crosses except against Australia's dollar. Key told Bloomberg that one-way bets on continued strength in the New Zealand dollar were "not a very smart thing to do." He also said the high dollar "takes the pressure off the Reserve Bank" to raise rates.

"So the fact the New Zealand dollar spent most of this morning on the back foot likely reflects a delayed reaction to some comments from Prime Minister Key last night," said Mike Jones, market strategist at Bank of New Zealand.

Key's comments were unlikely to have been an attempt to influence the central bank and "from this perspective, the falls in the NZD/USD look to be an overreaction," he said.

The kiwi fell to 77.23 Australian cents from 77.49 cents yesterday after the Reserve Bank of Australia left its target cash rate unchanged on 3.5 percent on Tuesday. Governor Glenn Stevens said that "China's growth has moderated to a more sustainable pace, but does not appear to be slowing further."

China, New Zealand's second-largest export market, has a raft of data out this week, with inflation and retail sales on Thursday followed by trade balance statistics on Friday.

New Zealand's QV monthly house price statistics for July will be released today. Property values rose 1.8 percent in the three months ended June 30 as homes in Auckland and Christchurch continued to appreciate amid a shortage of supply.

The New Zealand dollar fell to 65.73 euro cents from 66.19 cents and declined to 52.13 British pence from 52.62 pence. The kiwi dropped to 64.07 yen from 64.20 yen.

BusinessDesk.co.nz

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